On October 21, 2021, the Department of the Treasury announced that the United States has reached an agreement with Austria, France, Italy, Spain and the United Kingdom on the treatment of digital services taxes (DSTs), a little more than a month before the United States was scheduled to implement additional duties of 25% on certain imports from each of those countries in response to their DSTs.
The Office of the U.S. Trade Representative (USTR) had previously explained that the DSTs adopted by these countries “discriminate against U.S. companies, [are] inconsistent with prevailing principles of international taxation, and burden or restrict U.S. commerce.” See SmarTrade Updates of January 7, 2021 and January 14, 2021. In June 2021, USTR announced the imposition of ad valorem import duties of 25% on products of these countries but suspended implementation to allow ongoing multilateral negotiations on international taxation issues more time to resolve the issue. See SmarTrade Update of June 2, 2021.
Such negotiations were successful, and on October 8, 2021, the United States, Austria, France, Italy, Spain and the United Kingdom joined 130 other members of the OECD/G20 Inclusive Framework in reaching an agreement on the Statement on a Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalization of the Economy and on reforming the international tax system. Under the October 21 agreement involving the United States, Austria, France, Italy, Spain and the United Kingdom, the countries have agreed as part of Pillar 1 to withdraw all unilateral measures (i.e., their DSTs) on all companies and to refrain from imposing new unilateral tax measures. As a result, any liability for DSTs that U.S. companies accrue during the interim period will be creditable against future income taxes accrued under Pillar 1 under the OECD agreement. (Pillar 1 of the OECD agreement is to be fully implemented in 2023.) In return, the United States will terminate the currently suspended additional duties on certain imports from Austria, France, Italy, Spain and the United Kingdom that had been adopted in the USTR’s DSTs Section 301 investigations. The USTR will formally terminate these trade actions and, in coordination with the Department of the Treasury, will monitor implementation of the agreement going forward.
The agreement on DSTs is reflected in a Joint Statement from Austria, France, Italy, Spain, the United Kingdom and the United States. Turkey and India, the other two countries covered by the USTR’s DSTs Section 301 investigations, are not parties to the agreement and could still be subject to the additional duties of 25% as of November 30, 2021.